By Mike Cuevas
It’s not uncommon these days to walk into a seller’s home for a traditional listing presentation and find out how much the seller owes on the property. Oops, what do you do now? This just turned into a short sale presentation.
One in five properties nationwide are currently underwater, or roughly 20 percent. In this harsh climate, it makes sense to focus on short sale education.
The most important thing is to distinguish the difference between a short sale and listing presentation. On a short sale, the seller is going to be less concerned with the amount of designations you have, your current listing inventory or even the size of your brokerage. The seller is going to be more concerned about their options when considering a short sale. Here are some tips on how to proceed.
First, you must determine if the seller has appropriate hardship. Short sales can be done with current borrowers, but it depends on the investor who actually owns the note. The best way to let someone know if they qualify is to show that the home is inevitably headed toward foreclosure. Hardship can be death, divorce, relocation, sickness, loss of job/income or more. Truth be told, the majority of borrowers are going to qualify for a short sale under these conditions.
Once the borrower has identified that a short sale is the best option, then begin your short sale presentation. First, go over the foreclosure timeline. If the property is going to be a short sale, the borrower is either already in default or about to be. Show the seller the foreclosure process so that there are no surprises. If you were to take a six-month listing, you have six months to get that house sold before getting fired. In short sales, if your client understands the foreclosure timeline, you will know how long you have to consummate the deal. In Illinois, once a Notice of Default is filed, it takes approximately seven months, or 210 days, to foreclose on the property. This way, you can have your sellers feel more comfortable while giving them an honest education.
Secondly, you need to know what types of liens you are dealing with. You must know the difference between first, second traditional liens and Home Equity Lines of Credit (mostly second liens in this market). When you know the difference, you can explain how they interact with the foreclosure process and how banks will or will not seek recourse on the borrower. In short sales, every deal is going to be different.
Next, walk the seller through the necessary short sale paperwork. By knowing this ahead of time, you can give your clients a checklist of the documents that the banks will ask for. They tend to be similar, but some banks have their own specific packages.
The short sale process is essential to explain. Just like any listing presentation, the seller needs to know what to expect. The short sale process and negotiation process are a completely different business. There will be agents who will outsource this end of their business, while some have their own in-house team. You can also let them know your exit strategies at this time. Only 24 percent of short sales close nationwide for a reason. By the time the short sale gets approved, the buyer has either found another property or no longer has the desire to close on the property. Therefore, if planned out prior to the presentation, your success ratio will improve and you will also “wow” the seller.
The most important topic to cover is the deficiency section. A seller wants to know the repercussions of doing the short sale. Is the lender going to pursue them? Will credit be affected? Will there be negative tax consequences with receiving a 1099 and why? Once you know how the banks deal with the loss, the seller will understand that over 90 percent of the time when a short sale is handled correctly there will not be many financial consequences. This is also where you separate yourself from your competition.
There are many things agents should cover in a short sale presentation. The need to brag about your marketing, sales presences, etc., will fade away as you put more emphasis on the homeowner.